Productivity

Productivity is the fundamental driver of long-term living standards, real wage growth, and the fiscal sustainability of nations, and is a key strategic priority for the governments encompassed by the Irish Sea Rim. Defined as ‘the efficiency with which an economy transforms inputs – specifically labour and capital, into outputs such as goods and services’, productivity is a top priority for governments across the world. Yet despite continued efforts, since the 2008 global financial crisis, many OECD countries have struggled to return to previous levels of productivity. This economic slowdown was exacerbated by the COVID-19 pandemic. Current global economic projections indicate that this situation is unlikely to change in the medium term^[57].

Productivity has been a key shaper of the economic trajectory of the constituent nations and regions of the United Kingdom, Ireland, and the Isle of Man. The period between 2010 and 2025 has been characterised by a complex mixture of economic stagnation and statistical divergence, influenced by the long-term effects of the 2008 financial crisis, the structural changes brought about by Brexit, and the shock of the pandemic.

Solving this “Productivity Puzzle” is a key priority for governments and regions. As a UK-EU unified, transnational Investment, Innovation, and Enterprise economic zone, the Irish Sea Rim offers a mechanism for unlocking productivity growth through agglomeration, knowledge spillovers, and shared infrastructure.

MACRO-LEVEL PRODUCTIVITY ANALYSIS – UNITED KINGDOM

The macro-productivity landscape of the three primary jurisdictions of the United Kingdom, Ireland, and Isle of Man reveals profound regional divergences in performance, measurement, and underlying economic structures. The period 2010–2019 represents a "lost decade" for UK productivity, while the post-2020 era has seen a complex recovery fraught with measurement challenges and structural shifts.

The United Kingdom’s productivity performance remains the primary concern for economic policymakers. Multiple sources rank UK productivity poorly compared with leading global economies, and particularly those of the Group of Seven (G7). Of particular note is the UK’s a persistent 20% productivity gap with the United States^[58].

Historically, UK labour productivity grew at a consistent annual rate of approximately 2% prior to 2008.Yet Data from the Office for National Statistics (ONS) paints a picture of entrenched stagnation^[59]. By Quarter 3 of 2025, the UK’s output per hour worked was estimated to be only 2.3% higher than the pre-pandemic baseline of Q4 2019. This equates to a compound annual growth rate (CAGR) of approximately 0.4% over the six-year period from 2019 to 2025, a fraction of the historical norm. Looking specifically at post-pandemic productivity growth, there appears to be a continued lack of momentum, with output per hour increasing by only 1.1% year on year.

A number of long-standing factors underlie the UK underperformance which must be addressed to ensure delivery of the UK Government’s Modern Industrial Strategy^[60].

• REGIONAL ECONOMIC IMBALANCE: The significant concentration of investment and economic output between London and the rest of the UK has led to poor transport links and fewer opportunities for the rest of the country, and a drain of talent into the Capital. In its 2025 Regional Productivity Agenda report, The Productivity Institute (TPI) notes that for many UK regions, the productivity gap between London and the Greater South East is wider than in other countries^[61], contributing to an inherent instability in the UK economy (Figure 14.1).
• LOW BUSINESS INVESTMENT: Previous underinvestment in advanced machinery, digital technologies and research and development, combined with complicated investment structures for SMEs, have resulted in weaker output.
• LOW SKILL, LOW WAGE EMPLOYMENT: Many sectors of the economy are characterised by jobs which offer low pay, little training, and limited options for advancement, and which deliver minimal contribution to productivity. There is a significant need for upskilling and vocational development to address skills mismatches, with a focus on skills development in rural and coastal regions and areas of deprivation.
• DEFICIT IN EFFECTIVE MANAGEMENT SUPPORT: Organisations of all sizes face a lack of effective strategic and operational management systems. This is particularly prevalent in large public sector organisations, where suboptimal planning, performance review, and leadership development have a significant impact on operational efficiency.
• POST BREXIT MARKET CHANGES: The post-Brexit transition period, combined with new trade and export regulations have affected productivity, particularly in manufacturing, logistics, transport, and services.

MACRO-LEVEL PRODUCTIVITY ANALYSIS – IRELAND

Any analysis of Ireland’s productivity must take into account the high level of multinational enterprise (MNE) activity within the country, and the statistical distortions this can create when assessing domestic activity. When looking solely at GDP, Ireland appears to be the most productive global economy. However, this figure is heavily inflated by economic activities generate significant accounting value, but employ relatively few staff – including contract manufacturing, intellectual property (IP) on-shoring, and aircraft leasing.

To address this, Ireland’s Central Statistics Office uses Modified Gross National Income* (GNI*). In 2024 GDP was measured at £562 billion, while GNI* was at £321 billion.^[62] The gap between the two measures represents the “globalisation effect” – value which flows through Ireland, but does not accrue to Irish residents.

Even when adjusted to the GNI* baseline, Ireland’s productivity performance is robust, particularly compared with the UK. Between 2015 and 2022, GNI* per capita grew by 26.7%, nearly double the 14.8% growth seen in Northern Ireland’s GDP per capita^[63]. This suggests that while the MNE sector distorts the top-line figures, there are genuine spillovers and a high-performing domestic export sector (e.g., agri-food, med-tech) that drives real living standards higher than in the UK.

However, the "Dual Economy" risks are real. The domestic SME sector faces a high cost base, driven by wages set in the MNE sector, without the corresponding productivity levels to support it. The National Competitiveness and Productivity Council highlights that the "cost of doing business" (energy, labour, insurance) threatens to erode the competitiveness of the indigenous sector^[64].

MACRO-LEVEL PRODUCTIVITY ANALYSIS – ISLE OF MAN

The Isle of Man (IoM) offers a third distinct model: a service-dominant micro-economy operating with high autonomy but significant capacity constraints.

While the IoM does not produce high-frequency "output per hour" series comparable to the ONS, its National Income accounts provide clear productivity proxies. In the 2023/24 financial year, the IoM’s Gross National Income (GNI) rose by 11.2% to £5.87 billion.^[65]

The economy is structurally biased toward high-productivity sectors:

• Insurance: 16.9% of GDP.
• eGaming: 14.2% of GDP.
• Professional Services: 13.8% of GDP.

These sectors are characterised by extremely high Gross Value Added (GVA) per worker. However, similar to Ireland, the divergence between GDP (domestic output) and GNP (income retained) is a critical indicator. In 2021/22, a contraction in net income from abroad caused GNP to fall by 2.6% even as GDP rose by 10.3%^[66].⁹ This volatility underlines the island's exposure to external financial flows.

With a working population of approximately 44,000 (36,555 employees + 7,853 self-employed) ¹⁰, the IoM faces acute labour supply constraints. "Productivity" in this context is less about efficiency in the manufacturing sense and more about maximizing the value-add of a finite workforce.

COMPARATIVE ECONOMIC IMPACT ASSESSMENT

In its 2025 report TPI also provided a guide to the productivity performance of the English regions and devolved nations, building on the work of the TPI’s eight Productivity Forums across the UK

The productivity trends in the UK, Ireland, and Isle of Man have distinct impacts on wages, living standards, fiscal health, and capacity.

WAGES AND LIVING STANDARDS

• UK: The stagnation of productivity has translated directly into a stagnation of real wages. With output per worker rising only ~2% over five years, firms cannot sustain non-inflationary wage increases. Real wages in Wales and Northern Ireland remain below their 2008 peak in real terms^[67].
• Ireland: High productivity in the MNE sector drives high average wages, but this creates a "cost of living" crisis for workers in the lower-productivity domestic sector (e.g., retail, care), who face high housing and service costs driven by the MNE wealth effect^[68].
• Isle of Man: High GVA per capita supports high average earnings, but the island faces a "two-speed" risk similar to Ireland, where the service economy (tourism/retail) cannot compete with eGaming wages, leading to labour shortages in foundational sectors.

REGIONAL PRODUCTIVITY AROUND THE IRISH SEA RIM

In its 2025 report TPI also provided a guide to the productivity performance of the English regions and devolved nations, building on the work of the TPI’s eight Productivity Forums across the UK

Figure 16.x: Labour productivity performance by major UK regions and Devolved Nations, levels (value added per hour in 2022, in £) and change (growth, in % real terms, 2008-2022)

GOVERNMENT PRODUCTIVITY PRIORITIES (2025/2026)

Both the UK and Ireland report that extensive skill shortages. While the region's cities are magnets for university graduates, this masks deep internal inequalities in educational attainment. In Bristol's most deprived areas, participation rates in higher education are

THE ROLE OF THE IRISH SEA RIM IN BOOSTING PRODUCTIVITY

Addressing regional inequality, investing in skills and infrastructure, and improving management and strategic capability will be essential to closing this productivity gap and boosting long term competitiveness^[69]. The Irish Sea Rim represents a game-changing opportunity to boost productivity and sustainable, inclusive economic growth through a radical reframing of the region’s economic geography to create a unified, transnational Investment, Innovation, and Enterprise Zone.

The economic logic of the Irish Sea Rim is rooted in Agglomeration Theory. Productivity is strongly correlated with the density of economic activity and the velocity of knowledge exchange. When viewed separately, the individual regions of the Irish Sea Rim lack the critical mass to support specialised supply chains or deep labour markets. However, by integrating these markets into a single sone, the Irish Sea Rim aims to replicate the agglomeration effects found in London and the South East.

By operating across a quadruple helix innovation model, the Irish Sea Rim creates a seamless integration across the four key elements in order to drive not just systemic innovation and productivity increases, but also to support improvements in living standards for rural, coastal, and deprived communities.